HSBC initiates coverage on Varun Beverages with 'buy' tag; sees 28% upside potential

Shares of Varun Beverages went through a one for five stock split on September 12.

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Brokerage firm HSBC initiated coverage on Varun Beverages, assigning the stock a 'buy' tag with a price target of Rs 780 as it sees scope for an over 28 percent upside potential in the scrip. The brokerage's bullish outlook hinges on its expectations that Varun Beverages has the potential to become the largest and most disruptive PepsiCo bottler in the company's history.

The company enjoys a 90 percent share of PepsiCo's total bottling volumes in India, a market still considered underpenetrated for soft drinks. In addition to that, it is also the exclusive bottler for PepsiCo in Nepal, Sri Lanka, Morocco, Zambia, and Zimbabwe. With its strong connection with PepsiCo, Varun Beverages is also the second largest franchisee of the soft drink company outside the US.

Meanwhile, HSBC also pointed to the arrival of disruptive digital market development models, driven by new AI tools and strategies, which could accelerate the company's growth. If Varun Beverages adopts these tools faster than competitors, it can pick up speed and expand its market share, HSBC noted.

HSBC also forecasts an intensified race in India's bottling industry as AI tools reshape the landscape.

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Shares of Varun Beverages went through a one-for-five stock split on September 12. Since then, the stock has remained volatile, dropping close to 3 percent in the period. Regardless of that, the stock is still up 23 percent year-to-date.

In addition to HSBC, brokerage firm Axis Securities also holds a bullish outlook for Varun Beverages. The brokerages predicts that Varun Beverages will maintain its robust growth momentum following its strategic acquisition of a beverage company, strengthening its presence in South Africa and the Democratic Republic of Congo.

Axis Securities highlights the company's ongoing focus on expanding its distribution reach, particularly in rural areas, and the commissioning of multiple greenfield and brownfield facilities across various regions, which will help reduce significant transportation costs. "We believe these investments are poised to support the company’s long-term growth objectives and profitability," Axis Securities stated.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.